Getting to Net Zero IIIFebruary 2020

TRACY HAYNESMANAGER, INVESTOR PARTNERSHIPS

The Atmospheric Fund75 Elizabeth Street, Toronto

FINANCING MUNICIPAL CO-GENERATION

FACILITIES

OBJECTIVES

1. Introduce TAF and suggest how TAF can provide support

2. Outline potential financial models for municipal co-digestion projects

FORMATION

• Non-Profit Corporation

• Established in 1991 via TAF Act

• Originally endowed by the City of Toronto and, in 2016, by the Province of Ontario, and in 2019 the Government of Canada

• Zero tax base funding

MISSIONEnable the acceleration of urban solutions that

reduce carbon emissions

GOALEmissions are reduced at least 80% by 2050

TARGETCarbon Neutral GTHA!

CONTEXT

70%of global carbon emissions originate in cities

KEY ACTIVITIES

CleanTech & focused on GHG reductions for GTHA

Additional co-benefits Scalable & path to commercialization Demonstrates & de-risks investible

opportunities Proven technology & demonstrated

proponent competency Capital stack - not senior debt nor

venture capital Risk-adjusted returns

INVESTMENT CRITERIA

Impact Investing

Policy Advocacy

Granting

INVESTMENT RESULTS$53M Net Asset Value (set to increase)

12.3% Average performance (4 years)

$35M Return from 47 Direct Investments

2+MTDirect GHG reduction

! Recognition !Awards from FT/IFC, Scotiabank, Clean50, & others

INSIGHT

“Cities that collaborate with other actors are able to deliver twice as many climate actions as those that govern through a less partnership-based approach”

C40 Cities / ARUP, Potential for Climate Action

FINANCING

Municipal “Green” Bond Structure Partnership Structure Performance Contract Structure

3 models …

BOND STRUCTURE – GOOD ECONOMIC SENSE?Advantages Equitable & efficient means to

finance capital investments Little difficulty borrowing interest rates are low demand for long-term bonds is

strong investor base is expanding

Extremely limited re-financing risk Predictable cash flow term can be 1 to 30 years, but

typically ≤10 years

Disadvantages Debt charges divert revenues from

other uses Increased exposure to interest-rate

shocks Limits on borrowing In Ontario, debt service must not

exceed 25% of revenues Must have adequate & reliable

revenues to make debt payments Paying more to borrow relative to

the provincial and federal government

Debt Lenders (~70%)

Municipality / Waste Water

Treatment Entity

BASIC PARTNERSHIP STRUCTURE – MONETARY FLOW

Project Company (SPV)

Grants / Incentives (??)

Equity Investors (~30%)

Contractors

Taxable & other players

Controlling interest considerations

Senior / Mezz. Debt 2 tranches – const.

& take out FCM?

Debt Service

SharesLoan

CRCE / Dividends

FLOW THROUGH SHARES (CRCE)

Opportunity A FTS is a tax-based financing

incentive FTS allow the issuer corporation,

e.g. the SVP, to transfer certain expenses to an investor - tax deduction!

Corporations undertaking renewable energy and conservation issue FTS to help finance project development activities

Challenges The total value of CRCE compliant

FTS are not enough to finance the entire equity portion

FTS players must be taxable entities

The equity player with a controlling interest will not benefit from FTS

TAF’S ENVISIONED ROLE

“Skin in the Game” via mezzanine debt or equity (up to $2M)

Act as finance syndication coordinator

Support development of the business case

Establish ‘standardized’ agreements to realize ease of replication

Mobilize Greater Capital in Low Carbon Solutions!

PERFORMANCE CONTRACTS Enables a project without upfront capital

costs to the owner Not a loan!

Extensively used in energy-saving projects TAF realized successes

Potential opportunity for the longer term demonstration of 5 to 15 projects need for identification of baseline and

actual savings available Applicable during the useful life of the

equipment

PERFORMANCE CONTRACTS

Operating Costs

Savings

Savings

Before Improvements During Financing Term After Financing Term

Operating Costs

Savings Repaying Cost of

Improvements

Operating Costs

THANK YOUTRACY HAYNES, MANAGER – INVESTOR PARTNERSHIPS

The Atmospheric Fund75 Elizabeth Street, TorontoON M5G 1P4thaynes@taf.ca | taf.ca

@AtmosphericFund